The Secret to Becoming a Successful Investor

When it comes to investing, there is no shortage of experts who claim to have the secret to success. There are those that claim to have come up with the ultimate quick-win investment strategy, the next sure-fire winning stock, technical analysis that never fails to provide stellar returns or the perfect system to time the markets. All of these are bound to fail and leave investors’ dreams unfulfilled.

Respected academic research and empirical findings show there are several strategies that have been proven to lead to successful investment outcomes, but we think there is one big secret that stands above all others. It is now well known that investment risk and returns are intrinsically linked, that trying to time the investment markets doesn’t work, that minimising investment charges can boost returns, that asset allocation (the composition of an investment portfolio) is the driving factor of investment performance and how maintaining a focus on the long-term (and avoiding knee-jerk decisions) delivers results. These are some of the strategies that underpin our own investment philosophy here at NorthStar. Each of these strategies is crucial to investment success, but what is the real key; the real secret to becoming a successful investor?

Here is it – the most important thing that successful investors do: Focus on what you can control and let go of worrying about short-term investment returns. That’s it – the real secret to successful investing. But let’s break this down a bit more and dig into what this means in practice.

Investment markets are unpredictable and investors have little control over short-term performance. Many investors find this fact difficult to accept, but understanding this, accepting it and learning to focus on the things we can control is one of the most important and fundamental aspects of successful investing.

Unfortunately, too many investors focus on short-term returns when the unpredictable nature of investment markets is something they have no control over. What we do have control over are the other factors that will play a crucial part in achieving investment success. This is where all investors should focus.

Focusing on the things that we can control is likely to produce the best outcomes – long-term growth, positive investment returns and achieving our investment goals. The key investment aspects which we have control over are:

• Investment Risk: Ensure your investments carries a suitable level of risk to meet your goals, but no more.
• Investment Charges: Minimise investment costs where possible to provide the best possible long-term returns.
• Asset Allocation: Diversify investments across a range of assets to reduce risk and boosts returns.
• Investment Horizon: Understand how long you are investing for and don’t react to short-term market events.
• Investor Behaviour: Study the key investment tenets and adopt behaviours conducive to maximising returns.
• Financial Plan: Understand how your investment strategy and performance fit into your overall financial plan.

No investor can control the investment markets or influence their short-term returns. Learning to accept this and focusing on those things we can control will always lead to the best outcome and provide the best chance of investment success.

If you would like to talk about any of the issues in this article or need more general help with your finances, please get in touch with us.